The Elephant Graph (Graph of the Week)

A few months ago former World Bank lead economist, Branko Milanovic, released a new book titled Global Inequality. His work has taken the economics profession by storm since. One chart in particular, dubbed by some as the elephant graph, because, well, it looks like an elephant, tells a fascinating story. Branko has a new, very accessible article out today over on VoxEU. I am using that article and chart for this edition of the Graph of the Week.

What the elephant graph shows is “cumulative real income growth between 1988 and 2008 at various percentiles of the global income distribution.” While that’s a mouthful, these economic and income trends in recent decades are important. As discussed below, the elephant graph is also very relevant to our office’s recent work on prime working age Oregon men and women, including some more to come next week.

Branko labels 3 points (A,B,C) which are of particular importance:

The results show large real income gains made by the people around the global median (point A) and by those who are part of the global top 1% (point C). It also shows an absence of real income growth for the people around the 80-85th percentile of the global distribution (point B).

Branko goes on to explain which populations are at points A, B and C. “Nine out of ten people around the global median [point A] are from Asian countries, mostly from China and India. These gains are not surprising, given that Chinese and Indian GDP per capita has increased by 5.6 and 2.3 times, respectively, over the period… Such dramatic changes in relative income positions, over a rather short time period, have not occurred since the Industrial Revolution two centuries ago.”

Point C consists of the global top 1%, which is “overwhelmingly people from the advanced economies – one half of the people in that group are Americans…”

Point B has been getting the most attention because it shows, effectively, no income growth in recent decades. And the fact that “Seven out of ten people at that point are from the ‘old rich’ OECD countries. They belong to the lower halves of their countries’ income distributions, for in effect the rich countries’ income distributions start only around the 70th percentile of the global income distribution.”

What Branko’s elephant graph clearly shows is how these trends compare to the global changes seen in recent decades. In his article today, and in various book reviews you can find online, the discussion broadens to talk about inequality and the impact of globalization and the like, in addition to some political ramifications of these trends. However, for today I just wanted to highlight this new important work and how it helps place some trends we’re seeing in the U.S. and here in Oregon in a global perspective.